Act now for a fair EU investment policy!

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Act now for a fair EU investment policy!

In March and April this year the European Parliament will vote on a new set of rules for investors when operating abroad. Yet the draft policy on the table looks like a one-sided charter of investor's rights that will limit the ability of governments' to regulate business for the public good.

We need to urgently let Parliamentarians in Brussels know that we want a balanced EU investment policy for decent work and sustainable development.

Why does investment policy matter?

Investment in Britain and overseas can undoubtedly create decent jobs and sustainable development. But under the wrong conditions, it can also undermine them.

EU member states currently have about 1200 bilateral investment treaties with other countries, mainly to protect their investors from host states confiscating their assets or discriminating against them. Yet these agreements have been notoriously one-sided in favour of investors, often tying the hands of governments to regulate over social and environmental issues, and provide quality public services.

Such treaties also have 'investor-state' dispute settlement procedures that allow investors to by-pass domestic legal systems of host states to seek enforcement of their rights through notoriously secretive international arbitration panels, with no right of appeal, and overseen by arbitrators drawn mostly from the ranks of international investment lawyers. Several high profile cases have seen social and environmental regulations overturned by investors.

The rights of multinational investors are well protected, yet the rights of workers and affected communities are often unenforceable and easily abused. Companies should have a responsibility to respect human rights, especially when investing in places where the governments are unable or unwilling to protect people under their jurisdiction.

Under the Lisbon Treaty, Brussels now has the power to make new Europe-wide treaties on investment. This is a real chance to restore some balance to investment policy by adding investor responsibilities to the mix. Yet these issues have not been dealt with by the European Commission's recent communication on investment - a good indication of the future direction that Brussels will take. So the time to act is now.

For more information see:

EU investment treaties: can we have labour standards with that? (TUC, August 2010)

An EU trade policy for Decent Work (TUC, August 2010)

Change EU investment policy - now is the time (Seattle to Brussels January 2011, briefing note)

Adding investor 'responsibilities' to the mix

EU investment chapters and agreements should include both the rights and responsibilities of investors. To achieve this balance, the European Union should take the following points into account:

No lowering of standards: to ensure that investment agreements do not erode state obligations regarding human rights, agreements must contain non-derogation clauses preventing host states from lowering their labour, social or environmental standards to attract investors, a commitment extending to all parts of their territory, including export processing zones (EPZs). Similarly, agreements must not include so-called 'stabilisation clauses' that protect investors from any new regulations applying to them. Such agreements should also deem that stablisation clauses in commercial contracts between investors and states are invalid on the grounds that they are limiting regulation in the public interest.

Protect government policy space: vaguely worded 'expropriation' and 'fair treatment' clauses in investment treaties have led to arbitration panels awarding compensation to investors because legitimate government regulations on social and environmental issues were deemed a form of 'indirect expropriation'. This has promoted a 'regulatory chill' - the reluctance of states to regulate for fear of being sued under such agreements. To remedy this problem, bona fide, non-discriminatory measures taken by a host state to protect or enhance legitimate public welfare and environmental objectives should not constitute a form of expropriation under such agreements.

Respect international norms: such agreements must commit the parties and their international investors to respect key international norms including those on preventing corruption and bribery, the ILO Declaration on the Fundamental Principle and Rights of Work, the OECD Guidelines on Multinational Enterprises, the ILO Declaration on Multinationals, and the UN Framework and Guiding Principles on Business and Human Rights, as well as measures to prevent tax avoidance through transfer mispricing and promote tax transparency through public country-by-country reporting.

Reform investor-state dispute mechanisms: international arbitration panels set up under agreements to hear 'investor-state' disputes have been notoriously secretive, undemocratic, ignoring basic rules of procedural fairness and have a strong perception of bias in favour of international investors. They also provide more protection to foreign investors than domestic ones. Going forward, the EU should ensure that investment disputes are heard by domestic courts in the host state. To ensure that such legal systems are fair, the agreement could require host state legal systems to adhere to basic principles of procedural fairness and the rule of law, or failing that, the investor could use the domestic legal system of its home state.

Investor liability: to balance investor rights, investors should also be subject to civil actions for liability in the legal system of their home state for the acts or decisions made in relation to the investment where such acts or decisions lead to significant damage, personal injuries or loss of life in the host state.

Capital controls: Given the increasing depth and frequency of financial crises, the rights of an investor to transfer its assets abroad should be limited by the right of the host state to institute capital controls in such circumstances.

Impact assessments: very little is known about the impact that investment agreements have on the scale and type of foreign investment they attract, and on the impacts such investment has on human rights, decent work and sustainable development. To better tailor investment agreements to drive human rights and sustainable development objectives, an impact assessment should be conducted by the European Commission prior to any investment agreement or chapter being concluded, paying particular regard to the likely impact on the quality and quantity of employment, and on the access to essential services and goods. The assessment should contain binding recommendations on how to avoid, or mitigate any potential harm identified.

Market access: 'pre-establishment rights' that provide market access to foreign investors should be offered through a 'positive list approach', rather than the current blanket approach, which can lead to sweeping and unforeseen liberalisation.

Investor definition: the definition of 'investor' and 'investment' needs to be restricted to genuine investments. Definitions that are too broad lead can lead to unwelcome forum shopping, where companies set up shelf companies to access more favourable investment agreement to sue states under.

Supporting industrial policy: Governments need the policy space to provide strategic support to industry, often through procurement policy measures. Government procurement policies for the purchase of goods and services by any level of government should be exempt from agreements.

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